Interesting Times: Ray Dalio’s Theory of American Decline (Transcript)

The following is the full transcript of legendary investor Ray Dalio’s interview on Interesting Times with Ross Douthat, May 7, 2026.

Editor’s Notes: In this thought-provoking episode of Interesting Times, host Ross Douthat is joined by legendary investor and author Ray Dalio to discuss his research into the rise and fall of global empires and what it means for America’s future. Dalio explains his “big cycle” theory, identifying three major forces—spiraling debt, domestic social conflict, and international power shifts—that he believes are currently pushing the United States toward a period of significant disorder. The conversation explores high-stakes topics ranging from the potential devaluation of the dollar and the role of gold to the disruptive impact of AI on the global economy. Ultimately, Dalio offers a sobering look at historical patterns to ask whether the American empire can be pulled back from the brink or if a fundamental “reset” is inevitable.

The Big Cycle: Ray Dalio on American Decline

ROSS DOUTHAT: Lately, I feel like we’re having kind of an end of the American Empire moment. In part, it’s our stalemated war in Iran.

VIDEO CLIP BEGINS:

UNIDENTIFIED SPEAKER: The Strait of Hormuz is closed. The nuclear material still in their hands. Americans are being crushed.

VIDEO CLIP ENDS:

ROSS DOUTHAT: In part, it’s just the strain that Donald Trump is putting on American alliances and the whole post-World War II order, or whatever remains of it. And in part, it’s the sense that our biggest rival, China, is sort of patiently biding their time, watching us flail around, waiting for us to just collapse.

My guest this week has been on this beat for a while now, and he has a grand theory of history that predicts that America is headed for a fall. He’s kind of an unlikely Cassandra. Ray Dalio built one of the world’s largest hedge funds, Bridgewater Associates, from the ground up. But these days, he mostly wants to talk about our imperial decadence and whether there’s anything we can do to pull the American empire back from the brink. Ray Dalio, welcome to Interesting Times.

RAY DALIO: Thank you. It’s interesting to be in interesting times.

America as a Bet: The Three Big Cycles

ROSS DOUTHAT: So people say. So you’re someone who spent your career making bets, and a substantial number of them have paid off over the last few decades. And lately you have been arguing that the United States of America is maybe not such a good bet at the moment. So if someone is looking at America right now, trying to decide, let’s say, whether to bet on the American Empire as a dominant force in the 21st century, what are the big forces or factors that they should be looking at?

RAY DALIO: Yeah, I correct that. I’m not saying that America is a bad bet or a good bet. I’m just describing what’s going on. And what I learned through my roughly 50 years of investing is that many things that are important that happened to me, didn’t happen in my lifetime before, but happened many times in history. And so I learned to study the last real 500 years of history to find what will cause the rises and declines of reserve currencies, their empires, and so on. And you see a pattern over and over again. And there is such a thing as a big cycle.

And the big cycle starts when there are new orders. There are 3 types of orders. There’s a monetary order, there is a domestic political order, and there is an international world order. And so these are 3 big forces that evolve.

So on the first force, as we look at that monetary order, there’s a debt cycle. When debts rise relative to incomes and debt service payments rise relative to incomes for countries, for individuals, for anybody, that squeezes out spending. That’s a problem. So for example, the United States now spends about $7 trillion. It takes in about $5 trillion, so it spends 40% more than it takes in. It’s been running those deficits for a while, so it has a debt that’s about 6 times its income, the amount that takes in. And you can see throughout history that that produces problems.

And it’s a very simple thing. The debts for a country work the same as the debts for an individual or a company, except the government can print money.

ROSS DOUTHAT: Right, which is an important difference.

RAY DALIO: An important difference.

ROSS DOUTHAT: Just speaking personally, so I can’t print money to pay my mortgage, right?

RAY DALIO: Right, but what that does is it also devalues money. So that’s the mechanics. That’s why there is a long-term debt cycle. As well as shorter-term debt cycles and money cycles and economic cycles that take us from one recession to overheating to another recession.

Related to that is the domestic political and social cycle that relates to the money part. And when you have very large wealth and values differences, big gaps in those—

ROSS DOUTHAT: Meaning between rich and poor?

RAY DALIO: Between rich and poor. And those with different values, and you get to the point where there are irreconcilable differences. Then you have political conflicts that are such that the system is at risk. I think we have the first that I talked about, first cycle going on. I think we have the second cycle going on, the political left and right, and there are irreconcilable differences. We can get into those.

ROSS DOUTHAT: And then, so then how does the international aspect fit in?

RAY DALIO: And then the international is the same thing. Internationally, there is always following a war, there is a dominant power and the dominant power creates the new world order. The order means the system. And so that began in 1945.

ROSS DOUTHAT: For us, the United States was the dominant power.

That’s right. Establishing that system.

RAY DALIO: That’s right.

The Post-War Order and Its Limits

RAY DALIO: And it established the system which was largely modeled after the United States system in that it was meant to be representative, the United Nations, for example. This was the multilateral world order, they call it. And so all different countries would operate and there was supposed to be a rule-based system.

But the problem with that is that without enforcement it’s not going to be an effective system. It was an idealistic system and it was a beautiful system, while it lasted, but we no longer have a multilateral rule-based system. We have what existed prior to 1945 through most of history, and now you’re going to have geopolitical disagreements, such as even what is existing with Iran. How are those disagreements resolved? You don’t take it to the World Court and get a verdict and get it enforced. It’s power that rules.

ROSS DOUTHAT: Right. But even, just on that point, even at the height of what we think of the rules-based international order, first, for most of that history, the US was in conflict with the Soviet Union, right? So there was an ongoing Cold War. So it was a relatively narrow window of just that system existing independent of great power conflict. And even then, right, American power was in the end sort of the decisive force, right?

RAY DALIO: Because the Soviets did not have real power. They had military power. But at the end of World War II, the United States had 80% of the world’s money. It had half the world’s GDP, and it also had the dominant military power. So as a result, we could give away money, and those who received the money appreciated the money. And then they had the Soviet system, which was a very limited part and financially almost broke or certainly insignificant.

ROSS DOUTHAT: Okay, so the military balance of power was real, but the financial balance of power just put America in charge.

RAY DALIO: Basically, yeah. That’s right. And when, fortunately, when there was mutually assured destruction, we didn’t use that military power. Though I remember the Cuban Missile Crisis as a kid, I watched and we didn’t know whether there would be a nuclear exchange, but they never came to that. And then the Soviet Union collapsed.

ROSS DOUTHAT: And then what role do just contingent events play in this kind of cyclical view of history?

Iran, the Strait of Hormuz, and the Test of American Power

RAY DALIO: Well, all the events that come along, I guess the question is, do they lead to a dispute? And how is the dispute resolved in a world where there’s not the court system that you go to to resolve it either domestically or internationally?

So for example, what’s happening in the Middle East, particularly what’s, let’s say, happening with Iran. There’s a conflict and then there’s a war because there’s no other resolution. And what the world is looking at right now is will this war be able to be won by the United States or will it be lost? And when we look at that, it’ll be measured in almost black and white terms of who will control the Strait of Hormuz and who will control the nuclear materials. Will the United States win a war? And we should also recognize that there are alignments here so that China and Russia and Iran tend to be more supportive of each other, just as there are supports on the other side.

ROSS DOUTHAT: Right. And that, again, just to sort of emphasize what’s distinctive about this moment relative to the past few decades, certainly, right? It’s the strength of the alignment on the other side. What are you—

RAY DALIO: It’s the relative strength.

ROSS DOUTHAT: Right.

RAY DALIO: And the breakdown of that order. In addition, there are big debtor-creditor relationships that enter into it. For example, when the United States runs large deficits, it has to borrow money. And that is very risky during periods of conflict. And so are interdependencies. In other words, in this world of greater risk, you have to have self-sufficiency because history has taught us that you can be cut off. Either side can be cut off.

The Suez Analogy: When Empires Lose Credibility

ROSS DOUTHAT: Yeah, I’m very interested in how the pieces fit together, right? So suppose the endgame in Iran is that we are perceived to have lost the war, or at the very least failed in our objectives. Maybe the Strait of Hormuz is open, but the Iranian regime is still in power, and there’s just sort of a perception that America tried this thing and it didn’t work. You think that that then bleeds back into people’s perceptions of, are we trustworthy to pay our debts?

RAY DALIO: I was just through Asia. I just spent about a month in Asia going and meeting different leaders and others. It has a very big implication, very much like the implication that happened when the British lost the Suez Canal because Egypt took control of the Suez Canal. And that was perceived to be the end of the British Empire. In other words, very significant.

ROSS DOUTHAT: This was in the 1950s.

RAY DALIO: That’s right. And that’s also when there was not a willingness to hold the debt and so on. What’s happening now in different countries is the question of will the United States defend us or is the United States not in a position to defend us because the population does not want to fight a war that lasts long. So the war has to be quick and not expensive and—

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ROSS DOUTHAT: Popular.

RAY DALIO: Popular.

ROSS DOUTHAT: Right, which our wars don’t tend to be these days. Just to stay with the Suez analogy just for a minute though, because I think it’s interesting and I’ve heard a lot of people offer that analogy. So this was a case where Britain and the French and the Israelis basically tried to retake the Suez Canal after it was nationalized by Egypt. So obviously there’s parallels to Iran. You have a choke point in global trade. You have a conflict over it between Western powers and a regional power, but in that case, the key element of Suez, it seems to me, was that Dwight Eisenhower and the United States basically told the British, “No, you’re not going to do that.” Right? So part of the crisis in confidence for the British Empire and the British pound and everything else was connected to this realization that this is, as you said before, the post-World War II order and America is in charge.

Do you need that to happen with China, right? Do you need to have a similar moment for people to really lose confidence in America? How much do you need a new hegemon to emerge, I guess is what I’m asking, for people to abandon the old one?

RAY DALIO: By the way, I don’t think China will end up being the classic hegemon, which we can get into deeply.

ROSS DOUTHAT: I’m interested in that.

RAY DALIO: In a few minutes, but what I would say is there was the combination of the British debts and the fact that it clearly lost power. The decline began before the Suez. There was a recognition that the United States was in a financially better position as well as a world power.

Where Does the Money Go? The Question of a Successor Power

ROSS DOUTHAT: But so how does that, if there is value in that analogy, what is the equivalent now? If people decide the US is no longer as trustworthy as we thought, it’s less likely to pay off its debts and so on, and maybe this goes to your point about China and whether they’re a new hegemon, do people go to China? Do people abandon the dollar as a reserve currency? Where does the money go if people lose confidence in America?

RAY DALIO: I’ll give you my thoughts on that, but I also want to say this is typical of every cycle. So when the British took over from the Dutch, it happened in the same way. The British were financially strong, capably strong. They lost, and it caused the shift from the Dutch Empire, which had the reserve currency at the time and the debt. And so it’s happened repeatedly the same way. So you don’t need the particular of, let’s say, President Eisenhower.

ROSS DOUTHAT: No, but you need a successor power. That’s what I’m asking about.

The Monetary System and Storehold of Wealth

RAY DALIO: Then I think what happens is, in answer to your question of where the money goes or where the wealth is, okay, you could be a dominant power, you could still have a dominant power, and you could still have financial problems, like the breakdown of the monetary system in 1971, okay? United States was still a dominant power. 1971, you had too much debt. And you couldn’t back up your promise to deliver gold, and you had a breakdown of the monetary system.

VIDEO CLIP BEGINS:

UNIDENTIFIED SPEAKER: I have directed the Secretary of the Treasury to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability.

VIDEO CLIP ENDS:

And we had the ’70s and stagflation. Okay, you could still have that. So you can have a crisis.

ROSS DOUTHAT: So that is a situation where you have a crisis, you don’t have a successor power yet, right? The Soviet Union didn’t take over in the ’70s. That’s right. We just went through a really bad 10 years.

RAY DALIO: You still have lousy finances. Right. And what that means is holding the bonds is not a good storehold of wealth. So money, to answer your question, there are two purposes of money, medium of exchange and a storehold of wealth. I think that you’re seeing right now China’s currency increasingly become a medium of exchange for a number of reasons. But I very much doubt that China will, Chinese debt or whatever, will be a serious storehold of wealth because of their history of not protecting wealth. And I don’t think any of the fiat currencies will be effective storeholds of wealth.

ROSS DOUTHAT: A fiat currency, just for our listeners, is just a currency issued by a nation state that isn’t backed in gold or anything else, right?

RAY DALIO: Where they can print the money.

ROSS DOUTHAT: Where they can print the money.

RAY DALIO: So when we look at history, we see that in all such periods, all the fiat currencies go down, okay? And gold goes up. Gold right now is the second largest reserve currency of central banks. In other words, the dollar’s first, then there’s gold, then there is euros, then there is yen. So why, I think the question is, what is money as a storehold of wealth? But gold now has been the leading candidate for that out of default because it’s been the winner over the last 50 years.

ROSS DOUTHAT: So alternatives to the dollar become more attractive without there being this shift to just, you know, we’re just buying Chinese debt instead. That would be the prediction.

RAY DALIO: So then for America, what’s right there? So I think from a transactions point of view, the way it works traditionally is, countries, as they start to transact in a currency, will build reserves in that currency for, it’s like their cash account, so that they expect that when they pay for those things they just bought, they have enough cash on hand to do that. So I would expect that that would increase the reserves. The issue of saving in that debt is a problem. So we are in a new world of saying, what is a safe storehold of wealth.

What the Correction Could Look Like

ROSS DOUTHAT: Right. How does this then, for the average American, sort of looking at your cycle and saying, “Okay, yeah, this has happened before. It’s happening again. We’re going through a period when we’ve spent beyond our means and there’s going to be a correction.” What do you expect that correction to look like? There’s the 1970s, which is a period of inflation and slow growth, stagflation, right? There’s the Great Depression model, which is a financial crash and crisis that leads to poverty and deflation. Which one should we be most worried about in this environment?

RAY DALIO: I think everybody should be most worried about what they don’t know about the future. Okay.

ROSS DOUTHAT: I am worried about that. That’s why I’m asking you to tell me.

RAY DALIO: We do not know a lot about what the world will look like in 3 to 5 years. What we don’t know is much greater than anything we know. I think we know that we are in increasingly disorderly times, and these are the greater risks. And so what do I think that answer should be? I think that answer should be to know how to have a well-diversified portfolio that is low risk, largely balanced for these kinds of uncertainties.

I would say one element to give a simplicity, if you’re saying, what is my typical portfolio? There’s stocks, there’s bonds, there’s investments in other countries. Diversification is good. I’m not going to be able to go through all the things about how to structure that. But I think any portfolio should have between 5% and 15% in gold. Because when you get into the really bad times for the rest of it, that is when gold does best. Okay. So whatever it is, it’s one of the reasons it’s been such a great investment in a sense over the last few years, because there’s a movement in that direction. So I would say balance, to know how to have good diversification as a hedge against the other stuff.

ROSS DOUTHAT: And I do as an investor myself, I do want the investment advice. But as a pundit, a columnist, whatever I am, right, who’s trying to describe or anticipate reality, even accepting that we can’t know for sure if there are these lessons from history, if there are these sort of cycles that repeat and we’re headed for a kind of— we can call it a bottoming out, we can call it a reset, maybe we bounce back from it. I’m just trying to get a sense of what you think life looks like at the bottom of the cycle and whether it is a sort of stagnation and persistent unhappiness, or is it more like crisis and clashes in the streets kind of thing? ‘Cause the ’70s versus the ’30s seem like different examples. That’s all.

Political Conflict and the Road Ahead

RAY DALIO: I’ll give you my concerns. I think we have these big issues, the money issue, the political social issue domestically, and the international geopolitical issues, okay? I think as I look at the clock, we’re going to come into the midterm elections, and I think that probably the Republicans will lose the House. And I think from that point on, you’re going to see an intensification of political conflict, political and social conflict that’ll take place in that period. Particularly there between that election and the presidential election in ’28.

I worry that those can be irreconcilable differences. I don’t know how they will go down. I don’t know how the respect for rules and law and order and whatever will keep law and order. I am concerned about, but I’m not predicting, broader-based violence. You could have broader-based violence. There are more guns in the United States than people. I’m not predicting, and I’m— let me complete my thought, if I may.

I’ve seen the possibilities. I think that everybody around them can look at these things and judge for themselves. My general reaction is that we are entering a period of greater disorder, to answer your question. I think greater risk than existed, and it is following that arc. And I’m— now we talk with words, but I plot things on charts in terms of what the patterns are. And these things are following those kinds of patterns. So for that reason, I think you asked me the question, I’m giving you my answer. And I think for those reasons, a good diversification of a portfolio and to be alert to those types of things.

Debt, Deficits, and Social Division

ROSS DOUTHAT: Tell me how you think the debt picture and the political and social picture interact because it seems like if you ask people what they’re divided about right now, they don’t say interest payments on the national debt, right? And they have a much longer list of things they’re divided about and I’m just curious how you think. So interest payments go up, they crowd out other forms of investment. What is the economic force that interacts with social disarray here?

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RAY DALIO: They’re divided about who has what money and who gets it, okay? So, which is very much related to the deficit. I wrote my most recent book to explain how it works with 35 examples, was called How Countries Go Broke. And I’ve been speaking to top levels of both the Democrat and Republican Party, and everybody agrees on those mechanics. Yes. And then when I go down, I say, you’ve got to get to 3% of GDP deficit through some mix of raising taxes, cutting spending, and controlling interest rates. That’s how you have to do it mechanically and so on.

But they say, “Ray, you don’t understand. In order for us to be elected, I have to make at least one of two promises. I will not raise your taxes and I will not cut your benefits.” Okay, so what the country’s divided on is, you know, let’s say the multi-billionaire class and those who are not, those who are struggling financially, the left and the right and populism and so on. And that has a money component. So the deficits and the money part is a very, very big part of the social conflict part.

ROSS DOUTHAT: But so when you’re talking to politicians about— and they give you this spiel about how we can’t raise taxes and we can’t cut spending, right? I think the follow-up that they would say is that people experience those things as threats to opportunity or equality, right? People who rely on Medicare and Social Security think this is the guarantee of equality. People who rely on low taxes to build a business, think this is the guarantee of opportunity. So if you are trying to sell those people on cutting deficits to 3% of GDP, what do you tell them you’re saving them from?

RAY DALIO: You’re saving them from a financial crisis.

ROSS DOUTHAT: Okay. Okay. What happens in a financial crisis in the US? What does that look like?

RAY DALIO: The financial crisis will mean that the capacity to spend will be very limited. In other words, you can’t afford— Right. —military expenses and social expenses and so on, so that you’ll be very constrained. And you’ll have, because the demand won’t meet up with the supply, you’ll have interest rates going up which will curtail borrowing, will hurt markets and so on, and that that will lead to the central banks trying to balance that by printing of money, which will also devalue the money and create a stagflation kind of environment.

ROSS DOUTHAT: Okay, so it sounds like in the worst case, it’s a combination of it’s 2008, financial crisis yielding 1970s-style stagflation? I’m sorry to try and demand—

RAY DALIO: No, I’m happy to try to give.

The Deficit Warning and the Heart Attack Analogy

ROSS DOUTHAT: Because just to put it in perspective for you, I am 46 years old. I have lived my entire life in the shadow of predictions about the US deficit being unsustainable. The first presidential election I really remember is Ross Perot’s campaign in 1992, which was run in part on those themes.

RAY DALIO: The dollar’s gone through the floor. Now whose fault is that?

ROSS DOUTHAT: Not the Democrats, not Republicans.

RAY DALIO: Somewhere out there, there’s an extraterrestrial that’s doing this to us, I guess. And everybody says they take responsibility. Somebody somewhere has to take responsibility for this.

ROSS DOUTHAT: But like a lot of Americans, that means that I tend to tune out the deficit argument. The first time I feel like that deficits overspending became a really big issue in, for people’s pocketbooks since the 1990s was the wave of inflation in the first couple years of the Biden administration. So I just think it’s useful for me and for listeners to understand concretely why are the 2030s or the late 2020s different from the last 20 years when we’ve also had these deficits.

RAY DALIO: Thank you for your curiosity. Okay, and I feel compelled to give you that answer. Okay, so it is like the plaque building up, and so it’s like you saying, like, I haven’t had a heart attack yet. Okay, and I can say, I feel okay. Okay, you haven’t had a heart attack yet. I understand you haven’t had a heart attack yet.

Can I show you the MRI of this plaque building up in your system? And can you understand what I’m saying about what that plaque— that you will have a heart attack if that plaque then starts to get that? Can you understand that? Can you understand where the numbers are and where you are? Look, it’s your life. It’s your choices. Okay. And ask yourself, is that right or is that wrong? Okay. That’s what you need to do for your own well-being.

ROSS DOUTHAT: And so in your story, it sounds like if you combine that diagnosis with your sense and my sense of how the American political system currently works, that you’re going to get at least a mild version of the heart attack before you get change. You said at the outset you weren’t really betting against America, in spite of my podcaster’s framing. Are you optimistic that we could have, I guess you could call it, a minor heart attack and recover?

The Role of Technology and AI in the Cycle

RAY DALIO: I think we’re going to come into a period of greater disorder as there’s a confluence between the monetary part, the domestic, social, and political part where there’s irreconcilable differences. And the international world order part. And I would say then I should bring in two other factors. One of them is acts of nature through history. Pandemics. Droughts, floods, and pandemics.

And if you take what is— most people think about what’s happening to climate, it’s not a movement toward improvement, it’s a movement toward worsening. And then technology and AI. And I think that we have to talk about technology and AI as it enters into this picture because it plays a role.

And the way it plays the roles, I think 3 ways. It can be a tremendous productivity-enhancing result that can help to mitigate maybe a lot, number of the debt problems and so on and so forth, perhaps. We can get into this. I don’t think it’s going to come across with that speed and so on.

ROSS DOUTHAT: Well, that’s just, I hear this from AI people. They will say that in a best case, AI, if it just adds X% to GDP growth, X% to productivity growth, that it reduces your original problem.

RAY DALIO: That’s right, that’s right. It makes the debt easier to bear. That’s what I’m saying. Because it can produce the incomes, let’s say, and the incomes can help debt service payments and the like.

So I just want to say that’s one of the three effects of the AI. The second effect of that AI, it is now creating enormous wealth gaps. Those who are the beneficiaries of it. We’re approaching who will be the first trillionaire. The wealth gap thing has increased at great amounts and so on. And it will replace a lot of jobs. And so that’s number 2 as a factor. So those gaps are an issue. However we deal with them, they will have to be dealt with. And that’s going to become probably a political question, but that’s an issue.

And then number 3 is the technologies themselves can be used for harm, a lot of power. It could be used by other countries. It can be used by those who want to inflict harm. It could be used by those who want to steal money. It can be used for harm.

ROSS DOUTHAT: Right. And in your pattern, in your cycles, you can see it as in that last sense, it increases geopolitical tensions potentially. It heightens Cold War dynamics. It increases domestic tensions. That’s right. But it could ease fiscal tensions. It could produce the productivity. But if it has some of the bad effects, it will probably have some of the good effects too, right?

RAY DALIO: And how that balances. You know, we won’t know what it is like in the future because it’s too— our human capacity to anticipate what it’ll be like in 3 to 5 years.

So I think that we, for all these forces, these 5 forces, I think over the next 5 years, it’ll be like going through a time warp. It’ll be huge changes over the next 5 years in all of these forces coming together. And at the other side of that, it’ll be almost unrecognizable. It’ll be very different. And it’ll be a period of great change, a great turbulence.

And then back to how, okay, so what does one do? Knowing that one is not going to know what that’s going to be like, then my own approach to this and a recommendation is knowing how to balance positions.

ROSS DOUTHAT: But for politicians though, I feel like listening to that account maybe makes them say, “Well, I know Ray Dalio wants us to cut deficits to 3%, but he also thinks we’re going through a 5-year time warp unlike anything in human history, so maybe we’ll just wait and see what the world looks like in 5 years before we painfully restructure Medicare and Social Security.”

RAY DALIO: I don’t think they’re going to think about where Ray Dalio thinks. I think they’re going to think about like, what does the ballot box think?

ROSS DOUTHAT: Yes, absolutely.

Can America Bounce Back? Historical Precedents

ROSS DOUTHAT: But there are, I’ve talked to people in Washington, DC who have, there’s always legitimate concern about the deficit and there are actual attempts to do something about it. I guess what I’m interested in is in your account of the rise and fall of empires, Spanish Empire, British Empire, the Dutch mini empire and so on, you don’t have these case studies of a great power going through this cycle hitting what you think of as the bottom. And then bouncing back and sort of having another run, or do you? Because that’s, I mean, look, as Americans, that’s our goal. If someone buys into your narrative, they would say, okay, but history isn’t deterministic. We can make choices and we can have ourselves another cycle, right?

RAY DALIO: Yes, and I think that’s possible, but here’s what has to happen, I think. And history would suggest that. Plato talked about this cycle. In the Republic. And he talked about the democracy and the problems with the democracy because the people don’t vote for what is good for them and the strength. 60% of the American people have below a 6th grade reading level. And there’s a problem with productivity and so on, and they vote and they determine a lot. And so the question is, how in a democracy can that happen?

And his view is that’s when you have ideally the benevolent despot, somebody who is going to take control, be strong, and give for the country, in a sense, bring people together. However that happens, what you need is a strong leader of the middle who recognizes essentially that the partisanship and the conflict is going to be a problem, but has the strength to get people and everything working in a way that it needs to work so that there can be a debt restructuring of some form, there can be an improvement in our education system, there can be the structural changes in efficiency.

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It’s difficult to run a big company. Imagine what it’s like to run this country and to run it well. So a lot has to— you have to have a remarkable person with great strength, and you have to have strong leadership that is then followed rather than subverted by either of those sides.

ROSS DOUTHAT: So you’re looking for the Franklin Roosevelt, maybe the Ronald Reagan figure of this particular crisis?

RAY DALIO: Well, I think it’s tougher now than it has ever been.

ROSS DOUTHAT: Because we’re further down.

RAY DALIO: Right, we’re further— everybody’s got an opinion. Do you know how difficult it is to lead? I mean, can you imagine? And everybody wants, you know, so can you lead people down the middle, bring people together and get them to do difficult things?

The Wealth Cushion: Does Being Richer Make a Difference?

ROSS DOUTHAT: But we’re also— I mean, this is something that I think about with these debates. We’re also extremely rich. The United States is much richer than it was even in the 1980s. It’s certainly much richer than it was during the Great Depression. And that, as much as people feel the bite of inflation or feel the struggle of a spike in the unemployment rate, that itself is a kind of stabilizer.

So it seems like you can also see scenarios where— like let’s take the example of Japan, right? Japan is a country that has carried a tremendous debt burden for a long time and it has done so— I wouldn’t say it’s done so with great success. It has become less economically dynamic. It’s more stagnant. It’s not where it was in the 1980s or 1990s when people were talking about Japan taking over the world. But it also has this kind of wealthy older society stability. Do you think that’s a plausible scenario for the US?

RAY DALIO: I think you raise two questions and I want to treat them separately even though they’re related. The first is about the higher living standards and us being richer. That has been true through all history. So all of these times, before World War II, that has been true. And the big issue is how people deal with each other.

ROSS DOUTHAT: Meaning that at the peak of debt, the empire is richer than ever before?

RAY DALIO: Yes. If you take per capita income, many measures, life expectancy, any measures of wellbeing, and you do a chart for really from the 1400s, in the Dark Ages, it was relatively flat. And so at every moment in time, we as a world, as a society, have been richer than before, making your point.

That didn’t prevent World War II, didn’t prevent the debt problems, didn’t prevent any of those things because the most important thing is how people deal with each other. Can they together deal with those problems? And because realistically, so what if we had 10% decline in our living standards as part of a healthy adjustment? So I’m almost finished, but I want to get this out. So that is the first thing. Doesn’t alleviate the debt problem, doesn’t alleviate the fighting for who controls.

ROSS DOUTHAT: But maybe it does a little, right?

RAY DALIO: Like the ’30s. I didn’t interrupt you. Please don’t. I’ll finish and then you’ll reply. So, and on the Japanese case, or do you want me to answer this one and then we’ll go to the Japanese case?

ROSS DOUTHAT: Just wait on the Japanese. Just one question on that. Don’t you think though that there is some— like if you take the ’30s, the ’70s, and the aftermath of the financial crisis in 2008 as each a period of some kind of economic crisis, it was better, right? The ’30s were worse than the ’70s, and the ’70s were worse than the 2010s. So maybe things can stabilize a little bit because we’ve gotten richer, right?

RAY DALIO: Yes, if you were to look at per capita income, life expectancy, any measures of standard of living or whatever it is. And you were to see a graph—

ROSS DOUTHAT: But even, I’m just saying, even the fighting, right, was not as bad in the ’70s as it was in the ’30s. That’s all I’m saying.

RAY DALIO: Well, I wouldn’t make too much of that. In other words, I would say this is much more like the ’30s. For a variety of reasons having to do with the measures. If you were to say the severity of the debt, the severity of the internal conflict. I mean, I lived through these. And I would say—

ROSS DOUTHAT: So you think we’re worse off than the ’70s?

RAY DALIO: Our conflict, our debt is worse off. That’s true. And the United States dominance in the world order and the conflict is worse off. So I would say that’s objectively the case. I’m not trying to make a bad case. I’m just trying to be analytical because my job is to bet correctly.

Could America Face a Japanese-Style Decline?

ROSS DOUTHAT: So how about our Japanese future? Could we have a Japanese future?

RAY DALIO: The Japanese situation is two main things, very interesting. The Japanese debt is an internal debt. In that particular case, the way it was dealt with is that the central bank printed a lot of money and bought the debt. That’s how they did it. And as a result of that, the Japanese yen declined, and so they had a tremendous depreciation in the value of the wealth because of the depreciation in the value of the money and the debt.

So yes, we can see something happening like that, but we also have a foreign— one-third of our debt is held by foreigners, so that’s a different thing. And we as a country owe money to other countries.

ROSS DOUTHAT: And here are—

RAY DALIO: But yes, and if you think that that’s a good outcome—

ROSS DOUTHAT: No, I don’t. Well, I think it’s—

RAY DALIO: It’s like the decline of the British Empire. You can have the decline of the British Empire, the same sort of thing.

America’s Strengths and Weaknesses: A Final Assessment

ROSS DOUTHAT: No, I don’t think it’s a good outcome. I’m interested in it because in the case of Japan, it’s sort of a sustainable stagnation rather than crisis and collapse. But I think where I would agree with you is that there, for various reasons that are beyond the scope of this conversation, Japanese society seems more likely to accept a depreciation in living standards than American society. In that sense, it probably isn’t a model.

Let me ask you a last question in the form of a comment about my own optimism that you can respond to, which is that I mentioned earlier that I’ve lived my entire life in a world of people worrying about deficits and deficit spending. I think it is completely reasonable to say, as you’ve said, that just because the crisis hasn’t arrived doesn’t mean that you aren’t going to have a heart attack tomorrow. So I totally expect everything you’re describing to have significant negative impacts on the United States.

At the same time, I do think it’s a weird moment where the US looks weak if you look at certain indicators, but we also can look very, very strong in many ways, right? Just if you look at the last 10 or 15 years, our GDP growth has substantially outpaced Western Europe, Canada, peer economies, right? We still have the world’s most profitable cutting-edge technology companies. We still have the world’s most capable military, and then socially, we have a lot of problems, but are there other big countries in the world that are better at assimilating immigrants, that have higher birth rates, that are geographically isolated from major wars and refugee streams and so on? I’m not sure there is a better bet.

So I guess if I’m looking forward 50 years, right? Isn’t America still in the context of the whole world order a place to have a certain kind of confidence in? What do you make of that?

The Three Fundamentals of a Healthy Nation

RAY DALIO: I think we can’t frame it as — like in the beginning of what I objected to was, is the United States going to win or lose or any of that thing? I think we know what healthy is. There are only 3 things any country has to do in order to be healthy. And this is throughout history.

First, educate your children well, in terms of their capabilities, the quality of their ability to be productive and their civility. Number 2, have them come out to a country in which there’s order and that people work together to be productive so that there’s broad-based productivity and prosperity. And don’t get into a war. Don’t get into a civil war or don’t get into an international war. That’s all you have to do.

Then you can look at the fundamentals of that. Are we educating our children well so that they can be productive and capable and they’re civil with each other, that we have a civil population? Do we have an environment where there is productivity and we can get along? I think we have terrible circumstances. I live in Connecticut and my wife helps kids trying to get through high school. The gaps in education, the gaps in these things and civility are real problems.

So I think that it really comes to that. It’s basics. Do you earn more than you spend? What’s your income like? What is your balance sheet like? These are basics. You know those basics. So if we can have those basics —

Yes, I lived, I thank God that I grew up in the United States because, oh my God, it was unbelievable. It was the place that anybody from anywhere in the world could come and truly be a citizen. So it had that real meritocracy. And I grew up in a lower middle-class family. My dad was a jazz musician. I could go to a good school and I can, I don’t know, make my way.

And I think of that creativity and all the wonderful things — broad-based education, a middle class, that we had a middle class and we had those things. And so I’ve seen the difference, right? And so I know what the fundamentals are and I look at measures and I’m worried about that.

ROSS DOUTHAT: All right, Ray Dalio, thanks for joining me.

RAY DALIO: Thank you for having me.